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Economy grows
at fastest pace in over two decades
In the
fourth quarter, gross domestic product (GDP) expanded 8.1% over the same
period the year before. The reading came in above the previous quarter’s
figure of 6.8%, (previously reported: +6.6% year-on-year), in addition to
exceeding market expectations of 6.1% annual growth. The acceleration in
the fourth quarter further confirms the strong growth trend in place since
the third quarter of 2006. Robust growth in investment, which accelerated
from 14.4% in the third quarter to 19.7% in the fourth, as well as
consumption which grew 6.9% annually (Q3: +6.7%), were the primary drivers
behind the acceleration. Consequently, domestic demand grew 10.0% (Q3:
+8.5% yoy). Meanwhile the contribution from the external sector to overall
growth was relatively unchanged. Export growth strengthened from 7.7% to
9.2%, whereas imports mirrored this development and accelerated from 14.3%
to 16.0%. At the sector level, the construction sector was the principle
motor of this quarter’s pick-up, expanding 16.0%, up strongly from the
2.7% growth registered in the third quarter. A quarter-on-quarter
analysis does not fully corroborate the acceleration suggested by the
annual figures, as GDP grew 1.66% over the previous quarter in seasonally
adjusted terms, well below the third quarter’s 2.04% growth rate. As a
result of the strong fourth quarter reading, the economy grew 7.5%, up
from the 6.8% growth rate registered in 2006 and represented the fastest
full-year growth rate in more than two decades.
Economy set to moderate
Regional tensions
between Venezuela, Ecuador and Colombia have eased greatly compared to
last month. Although some tensions still exist between Colombia and
Ecuador, the militarisation of the border regions has ceased and the sides
appear to be on the path to the full normalisation of relations. On the
economic front, after having expanded at the fastest pace in more than 20
years in 2007, the economy is set to slow this year as both the domestic
and external sectors moderate. By the end of March, the Colombian
Peso had appreciated 19.0% year-on-year to reach 1,810.7 pesos
to the US$. One of the primary drivers behind such a marked
appreciation is the widening interest rate spread between the U.S. and
Colombian reference rates, which now stands at 7.0% and represents the
largest such gap since July 2001. However, despite the consistent
appreciation of the country’s currency, the external sector remains robust
for the time being. In fact, in December 2007, exports reached US$ 3.1
billion, which represented an annual increase of 50.4%. This year,
however, exports are expected to grow a more moderate 8.4% nominally, down
from the 23.1% growth registered in 2007. In addition, some indicators
point to weaker growth on the domestic side of the economy. In February,
unemployment reached 12.0%, down from the previous month’s 13.1% reading,
as well as being below the 12.7% registered same month the previous year.
However unemployment is expected to reach 10.2% this year, compared to
9.9% last year. As unemployment rises, a concomitant decline in consumer
spending is expected to take place. Furthermore, the Central Bank is
expected to raise interest rates this year in an attempt to reduce
inflation. Finance Minister Oscary Zuluaga recently stated that the
government expects the economy to expand 5.0% this year.
Consensus
Forecast panellists share the minister’s assessment and as such see
economic growth reaching 5.3% this year, which is 0.1 percentage points
down from last month’s forecast. For 2009, the panel expects the economy
to grow 5.0%.
Central Bank maintains interest rates unchanged as
inflation declines
In March,
consumer prices added 0.81% over the previous month. The figure came in
well below February’s 1.51% result and fell short of market expectations,
which had prices adding 1.05%. The monthly price rise was broad-based, as
all of the categories composing the index increased over the previous
month. That said, the primary drivers of the strong price hike were
strong increases in housing and health prices. The price spike in housing
mainly reflected higher fuel prices. In spite of the strong price
increase registered in March, annual headline inflation fell from
6.4% in February to 5.9%. Despite the heightened inflationary
environment, on 28 March, before the publication of the most recent
inflation data, monetary authorities kept the benchmark interest rate
unchanged at 9.75%, which was in line with market expectations. At the
previous meeting, authorities unexpectedly had already raised the headline
interest rate 25 basis points. Monetary authorities cited the positive
results from the previously implemented monetary tightening and global
uncertainty as the main reasons for their decision. That said, inflation
currently exceeds the upper end of Bank’s target range of 4.5% for this
year. Consensus Forecast panellists expect inflation to moderate
slightly to 4.9% by the end of this year, which is up 0.3 percentage
points from last month’s estimate. Next year, panellists anticipate
inflation to moderate to 4.1%, which is within the Central Bank’s target
range.
Current
account deficit shrinks
In the
fourth quarter, the current account balance incurred a deficit of US$ 1.1
billion. The figure is larger than the US$ 909 million deficit registered
in the same quarter the year before, but came in under the US$ 1.5 billion
deficit registered in the third quarter (previously reported: US$ 1.2
billion). The improvement over the preceding quarter was primarily due to
an improvement in the trade balance, which turned from a US$ 160 million
deficit in the third quarter to a US$ 338 million surplus in the fourth.
Exports grew 23.1% annually in the full year 2007, while imports grew a
more robust 25.7%. Despite the improvement observed in the fourth
quarter, the 2007 full-year current account deficit reached US$ 5.9
billion, which was almost double the US$ 3.1 billion deficit registered in
2006. Consensus Forecast participants estimate the current account
deficit to widen to US$ 7.0 billion in 2008. Next year, panellists
anticipate the current account deficit to shirk slightly to US$ 6.9
billion.
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